Walker administration plans to sell much of state's royalty oil to Tesoro

The Walker administration says it plans to seek legislative approval to sell a large chunk of its royalty crude oil to Tesoro Alaska under a five-year contract.

The contract would allow the state to sell the state's only gasoline refiner up to 25,000 barrels of oil daily. Sales would begin as early as Aug. 1, according to a copy of the contract released by the state Department of Natural Resources.

The proposed sale will earn $45 million to $56 million in extra revenue for the state during the life of the contract, compared to the other option of letting the large oil producers sell that oil and pay cash to the state, according to a statement from DNR.

On Thursday, the department concluded the sale is in the state's best interest.

In a preliminary finding in February, state officials said the additional money is critical with Alaska facing a $3.8 billion budget deficit brought on by low oil prices.

The sale will also help support Tesoro's Nikiski refinery, the statement said Thursday. Tesoro became the state's only gasoline refiner with the closure of the Flint Hills Resources refinery in North Pole in 2014, a shutdown blamed both on challenging economics in the industry and long-term liability associated with a solvent spill at the site.

The state has previously sold about 10,000 barrels of royalty oil daily to Tesoro. The new deal would commit roughly half the state's royalty oil.

The state has historically made more money by selling its royalty oil, compared to the other option, the preliminary finding said. Royalty crude oil sold to in-state refiners is more valuable in part because it eliminates long-distance marine transportation costs associated with shipping that oil out of state.

The state plans to continue allowing oil producers to sell some of its royalty crude oil in part because doing so allows the state to obtain pricing information and other valuable data.

The Walker administration will introduce a bill to allow the Legislature to vote on the deal this session. Approval is required for any such sale with more than a yearlong contract.

On Tuesday, the Alaska Royalty Oil and Gas Development Board, which reviews proposed royalty sales, recommended approval of the plan to the Legislature.